Practical Insights (Blog)

Adapting to a world of low prices and plentiful supply

Supply is up, demand is down and it looks like the conditions that created the rapid price slump at the end of 2014 will remain in place for the foreseeable future. Whilst Oil and Gas Industry veterans are no strangers to the boom and bust cycle, the slower than anticipated recovery has exposed entrenched operational inefficiencies that need to be addressed. Some industry leaders saw the writing on the wall back in 2014 and began implementing measures to drive inefficiencies out of their business. Others chose to watch and wait, perhaps in the belief that, as in 2008, low crude prices were just a blip and would soon return to the normal $80-$100 range. The message to those organizations is that doing nothing is no longer an option. Producers and refiners can survive, and indeed thrive, in a market where supply outstrips demand (figure 1) but, to do so, they need to rapidly adapt to the industry’s new reality.

Procurement is always facing new challenges. These include increased global competition, unpredictable external factors and an increased expectation that organizations will have mature sustainability practices in place. To mitigate these pressures, and stay ahead of the competition, companies need to develop best-in-class procurement practices with the ability to rapidly respond to market shifts. So what happens when your organization is hit by a crisis that threatens its customer-supplier relationships?

This year, the US chemicals industry has become increasingly unpredictable from a purchasing and supply chain management standpoint. At the same time top–line organic growth is proving ever more elusive. However there is light on the horizon in the form of industry and economic growth. The slower-than-expected pace of this growth has opened a short window of opportunity which companies can exploit to gain the competitive edge.